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Were Hedge Funds Right About Flocking Into The Gap Inc. (GPS) ?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and optimism towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the first quarter and hedging or reducing many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding The Gap Inc. (NYSE:GPS).

The Gap Inc. (NYSE:GPS) was in 27 hedge funds’ portfolios at the end of the first quarter of 2019. GPS has experienced an increase in activity from the world’s largest hedge funds recently. There were 20 hedge funds in our database with GPS holdings at the end of the previous quarter. Our calculations also showed that GPS isn’t among the 30 most popular stocks among hedge funds.

In the eyes of most shareholders, hedge funds are assumed to be worthless, old investment tools of years past. While there are over 8000 funds trading at present, Our experts choose to focus on the aristocrats of this group, about 750 funds. It is estimated that this group of investors orchestrate most of the smart money’s total asset base, and by keeping an eye on their highest performing picks, Insider Monkey has revealed a few investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

MILLENNIUM MANAGEMENT

We’re going to analyze the recent hedge fund action encompassing The Gap Inc. (NYSE:GPS).

What have hedge funds been doing with The Gap Inc. (NYSE:GPS)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in GPS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

GPS_jun2019

More specifically, AQR Capital Management was the largest shareholder of The Gap Inc. (NYSE:GPS), with a stake worth $100.1 million reported as of the end of March. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $46.1 million. Citadel Investment Group, Renaissance Technologies, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the most valuable position in The Gap Inc. (NYSE:GPS). Balyasny Asset Management had $15.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $12.5 million position during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, Robert Pohly’s Samlyn Capital, and Joel Greenblatt’s Gotham Asset Management.

Let’s also examine hedge fund activity in other stocks similar to The Gap Inc. (NYSE:GPS). These stocks are AXA Equitable Holdings, Inc. (NYSE:EQH), Vedanta Ltd (NYSE:VEDL), AEGON N.V. (NYSE:AEG), and WestRock Company (NYSE:WRK). This group of stocks’ market caps are similar to GPS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQH 35 1030862 9
VEDL 6 50111 -1
AEG 10 30774 -1
WRK 23 460835 -6
Average 18.5 393146 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $393 million. That figure was $318 million in GPS’s case. AXA Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 6 bullish hedge fund positions. The Gap Inc. (NYSE:GPS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately GPS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GPS were disappointed as the stock returned -20.6% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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